The Future of Cryptocurrency: Initial Coin Offerings (ICO)

Initial Coin Offerings (ICOs) are events where companies sell virtual currencies to raise funds. Investors receive cryptocurrencies in exchange for monetary contributions. In many ways, an ICO is the virtual currency version of an initial public offering (IPO) on a stock exchange. While it is possible to generate significant profits from ICOs, the lack of regulation makes them very risky. Learn all about ICOs in this guide.

What is an Initial Coin Offering?

ICO is another form of cryptocurrency used by companies to raise capital. Through the ICO trading platform, investors receive their own cryptocurrency “tokens” in exchange for their cash investment in the company. This is a crowdfunding vehicle for creating and selling digital tokens to fund project development.

This unique token functions like a currency unit, granting investors access to certain features of projects run by the issuing company. These tokens are unique because they fund open-source software projects that are difficult to support through traditional structures.

How do Initial Coin Offerings (ICOs) work?

When a company decides to launch an ICO, the dates, rules, and purchasing process are announced in advance. On the day of the ICO, investors can purchase new cryptocurrencies. Most ICOs require investors to pay using another cryptocurrency, with Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) being two popular options. There are also ICOs that accept fiat currency.

The purchase process typically involves sending funds to a specific crypto wallet address. Investors provide a unique recipient address to receive purchased cryptocurrencies. The number of tokens sold during the ICO and the price of the tickets can be either fixed or variable. Here’s an example of how this works.

  • Fixed number of tokens and price: The company sets both in advance.
  • Offering 1 million tokens for $1 per token.
  • Fixed number of tokens and variable price: The company sells a fixed number of tokens and sets the price based on the number of funds received. More funding leads to higher token prices. If you sell 1 million tokens and raise $2 million, each token will cost $2.
  • The variable number of tokens and fixed price: The company sets a fixed price, but there is no limit to the number of tokens that can be sold.

An example would be if a company sold tokens for $0.50 each by the end of its ICO. Anyone can start an ICO. Due to the low barriers to entry, many new types of cryptocurrencies are being introduced through this process.

Types of Initial Coin Offerings

The initial coin offerings list is shown below.

1. Private ICO

For Private Initial Coin Offerings, only a limited number of investors are allowed to participate in the process. Only accredited investors (financial institutions and high-net-worth individuals) can join private ICOs, and companies can set a minimum investment amount.

2. Public ICO

A public initial coin offering (ICO) is a form of crowdfunding open to the public. A public offering is a democratized investment in which almost anyone can become an investor. However, due to regulatory concerns, private ICOs are becoming more viable than public offerings.

The rise of cryptocurrencies and blockchain technology has increased the popularity of ICOs. In 2017, the ICO raised over $7 billion for him. In 2018, that number nearly doubled. The largest ICO to date was carried out by Telegram, an instant messaging service provider. The UK-registered company raised over $1.7 billion in a private ICO.

Benefits of ICOs

Investors can enjoy the following benefits:

  • Opportunity to acquire new cryptocurrencies at low cost. We hope to get a good return on our investment (similar to buying Bitcoin in 2011).
  • ICOs coins can provide additional benefits such as Redistribution of Revenues or Privileged Access to Project Products and Services.
  • Ability to support favorite projects and teams. Meanwhile, the token issuer receives.
  • Faster access to seed funding with fewer regulatory restrictions.
  • Funds with no equity loss unless otherwise stated.
  • Opportunities to develop and experiment with innovative decentralized business models.
  • The initial user base is interested in testing the service.

How can I participate in initial coin offerings?

Many websites list current and upcoming initial coin offerings, such as Reddit, Cyber ​​Fund, and even social media sites like Facebook. The first step in investing is identifying which projects or startups are most interesting. Set up your ICOs for cryptocurrency wallet while browsing the ever-growing number of ICOs hitting the internet worldwide.

Since there is no formal structure, each ICO may have different requirements. Still, ultimately the tokens will be issued after payment via the cryptocurrencies identified and listed on the ICO website to the blockchain, providing investors with the exact step-by-step process. A guide to the investment process.

Public websites such as Blockchainhub note that it is essential not to use any online wallet or exchange before investing. Backers usually need to export their private keys to another wallet to access new coins. Therefore, ensuring that the wallet’s private key is exportable is essential.

The company sought to expedite the process by offering an online working wallet for her ICO where investors can send funds directly to an established wallet. Funds are tokenized using the exchange rate at the purchase, where tokens are deposited in the wallet. Others transfer purchased tokens to the address from which the funds originated. Investors should also be aware that specific wallets are incompatible with tokens and may not appear after purchase and receipt.

For this reason, it is imperative to have a wallet that allows private key export to transfer tokens to new compatible wallets. Since the launch of Ethereum, access to buying tokens has become much easier than before as developers have set up user-friendly campaigns and Ethereum wallets support multiple tokens. Aside from identifying the ICO, due diligence is also recommended to avoid fraud and Ponzi schemes.

ICO Rating provides investors with a complete valuation of the project or company. We will provide other companies with additional background information if you need more details.

What regulations apply to ICOs?

It isn’t easy to get out. Regulations vary by jurisdiction, and each project has nuances that can affect how government agencies view them. Please note that the lack of regulation in some places is not a free pass for funding projects via ICOs. Therefore, it is crucial to seek professional legal advice before opting for this form of crowdfunding.

In many cases, regulators have imposed sanctions on teams that raise funds in securities offerings. If the authorities determine that the token is a security, the issuer must follow the strict measures applicable to this class of traditional assets. On this front, the U.S. Securities and Exchange Commission (SEC) offers some great insight. In general, regulatory evolution in the blockchain space is slow, especially as technology overtakes the slow-moving wheels of the legal system.

Nevertheless, many government agencies are discussing implementing more transparent frameworks for blockchain technology and cryptocurrencies. While many blockchain enthusiasts fear potential government overreach (which could hinder development), most recognize the need for investor protection. Unlike traditional finance courses, making it accessible to anyone in the world poses some significant challenges.

How to identify fake ICO scams?

ICOs are so popular that being able to identify them can save you a lot of money. According to Ernst & Young, nearly 10% of his ICO-raised funds ended up in the crook’s wallet. However, there are ways to identify fraudulent ICOs. Watch out for the following standard signals:

  • Anonymous Team- Scammers keep their teams private, so no one can be sure who is involved in the project-a big red flag.
  • The offer seems too good- If a project offers ridiculous returns or impossible products, that’s a big red flag.
  • No roadmap- Serious startups always plan and are open to the next step. If the project’s future is kept secret, it probably doesn’t exist.
  • Bitcointalk.org thread- A legitimate way to start an ICO is to announce it on BitcoinTalk.org. It is the largest Bitcoin and cryptocurrency forum, where serious projects are happy to participate in discussions and answer questions.
  • Trustworthy projects submit their code to GitHub for anyone to review.
  • PR and media activity- Trustworthy Projects employs seasoned marketers who can build an active and engaged community. Additionally, it’s always a good sign if your project is positively mentioned in quality publications.

Note that not all ICOs are scams. They also provide legitimate ways to raise money for fair and cool projects.

Conclusion

Initial coin offerings have proven to be a very effective means of raising funds in the early stages of a project. After the successful launch of Ethereum’s first coin in 2014, many organizations were able to raise funds to develop new protocols and ecosystems. We hope this guide has solved all your questions related to ICO.

Originally published at Reveation Labs Blogs

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Reveation Labs

Reveation Labs

We are an established Blockchain Development Company based in the US, dealing in Blockchain, NFT Marketplace, Metaverse, Web 3.0, DeFi, and Tokenomics.